At a blockbuster Congressional hearing on Wednesday, the CEOs of four dominant tech firms faced tough questions about their business practices and defended themselves against a wide range of antitrust charges and other claims.
The hours-long hearing, which kicked off on Wednesday midday, gave a rare up-close look at the heads of Apple (AAPL) - Get Report, Facebook (FB) - Get Report, Alphabet (GOOGL) - Get Report and Amazon (AMZN) - Get Report in a single event. CEOs of each of the firms, which comprise four of the five most valuable companies in the U.S., dialed in to give testimony through Cisco's (CSCO) - Get Report WebEx.
In opening statements, the lawmakers acknowledged that the four companies are very different, but objected to their common ability to unfairly "pick winners and losers" in the economy, choke small businesses with fees and other onerous terms, and freeze out competition.
"Many of the practices used by these companies have harmful economic effects," said Rep. David N. Cicilline (D-R.I.), chair of the House Judiciary's Antitrust Subcommittee. "Simply put, they have too much power, staving off creativity and innovation ... killing the overall dynamism that is the engine of the American economy."
In an opening round of questions for Google CEO Sundar Pichai, Cicilline accused Google of stealing content from other companies to build up its own business, and abusing its power to keep users within its family of sites, thus stifling competition. Citing internal documents, Cicilline said Google had threatened to delist Yelp (YELP) - Get Report because it was diverting too much traffic from Google's own search results, among other questionable practices.
For his part, Pichai appeared unruffled and responded with general answers to his questions before Cicilline moved on to make another point in his five initial minutes of allotted time.
Earlier in the day, President Trump threatened to take action against tech giants via executive order if Congress didn't "bring fairness" to them.
Several lawmakers zeroed in on Amazon's Jeff Bezos during the questioning, grilling Amazon's founder on the company's dual role as both a marketplace and a seller of private label products, as well as its history of undercutting competitors it considers a threat.
Rep. Cicilline pointed out that of 2.2 million active sellers on Amazon, 37% rely on Amazon as their sole source of income. In company docs gathered by the committee, Amazon refers to these same sellers as "internal competitors."
"We have a policy against using seller data for our private label business," Bezos responded, but said he can't "guarantee" that policy is never violated. Lawmakers also pointed to Amazon's purchase of Diapers.com in 2010 as an example of unfair competition that did not benefit consumers. They said that prior to purchasing the company, Amazon took a profit loss of $200 million in order to undercut diaper prices. After eventually buying Diapers.com, Amazon raised its diaper prices.
Turning to Facebook, several lawmakers aired grievances surrounding Facebook's content policies, while much of the antitrust-focused questioning drilled in on Facebook's pattern of copying features from competitors, such as Snap's (SNAP) - Get Report Snapchat, and undercutting their business in order to guard its market dominance.
The committee cited a 2012 internal email from Mark Zuckerberg, in which he fretted about competitive upstarts like Instagram and Path, writing: "the businesses are nascent but ... they could be very disruptive to us."
Rep. Jerry Nadler (D-N.Y.) asked whether Facebook had acquired Instagram to neutralize a potential threat and Zuckerberg responded that they always viewed Instagram as a competitor in mobile photo sharing. But there were other rivals, too, and Instagram’s success was far from guaranteed. After they acquired it, Facebook invested in it and helped promote it and worked on their security, Zuckerberg said.
“I think that this has been an American success story,” Zuckerberg said.
Nadler said Instagram’s success proved his point and that the acquisition should never have happened in the first place.
Meanwhile, Cook defended Apple against criticisms by lawmakers that it stifles competition through restrictive developer fees and terms. Members of the committee cited Apple internal documents suggesting that Eddy Cue, Apple's senior VP of software and services, rejected e-book apps from publisher Random House as leverage in forcing the bookseller to join its own e-book marketplace. Other documents showed Apple purportedly rejecting children's content screening apps in favor of pushing users to Apple's similar Screentime feature.
Cook countered by saying that apps can be rejected for any number of reasons, and described the App Store as a "wide gate" that has allowed millions of apps over the years. Cook also noted that Apple has never raised its App Store fees, and that a large majority of apps (84%) are not charged any fees at all.
In a note on Wednesday, Wedbush analyst Dan Ives wrote that "so far the bark has been worse than the bite" around the criticism of Apple's App Store fees.
"So far from the testimony and line of questions it's clear the antitrust argument around all four tech stalwarts centers around each platform as a bottleneck for competition," Ives said. "We don’t see Congress agreeing on legislation unless both houses of Congress and the Presidency are controlled by the same party."
Antitrust investigations into Alphabet, Facebook, Apple and Amazon have been underway for several months, and Alphabet may be the first to face an indictment.
In May, the Wall Street Journal reported that the DOJ and State AGs are likely to file antitrust charges against Alphabet in the coming months, with the complaint relating to its dominant position in online advertising.
Forthcoming charges for the other three tech firms haven't been reported, but they remain in the sights of U.S. lawmakers -- and committee members at Wednesday's hearing painted a broad picture of unfair abuses by the four companies, all of which have accumulated more market value during the COVID-19 pandemic as consumers have had to rely even more on online services.
The House Judiciary Committee plans to release a report on the antitrust allegations against the four tech firms in the coming weeks. That report is expected to propose legislative changes that would help bring antitrust law up to date for the digital age.
Alphabet shares rose 1.3% to $1,523.51, Facebook was up 1.4% to $233.29, Apple was up 1.9% to $380.16 and Amazon was up 1.1% to $3,033.53 on Wednesday on an overall strong day for the markets as the Fed promised to continue supporting the economy through the coronavirus pandemic.
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